Hakea Holdings Pty Ltd v McGrath (No 2)

The Federal Court heard a case between Hakea Holdings Pty Ltd and McGrath, the latter being the sole director and shareholder of a building company. Hakea, the plaintiff, alleged that McGrath breached his director's duties under section 180(1) of the Corporations Act 2001 (Cth) by not disclosing the severe financial distress and inability of the building company to complete an aged care facility construction project. Hakea further claimed that McGrath's failure to disclose constituted a breach of his duty to avoid conflicts of interest and duty. The case also involved issues surrounding directors and officers liability insurance, specifically the "claims made" policy and exclusion clauses related to personal profit or advantage and prior knowledge of circumstances leading to loss. Additionally, the admissibility of previous representations made in affidavits in other proceedings as evidence was a point of contention.

The court had to determine if McGrath breached his duties under section 180(1) by failing to disclose critical information about the building company's financial situation, and if so, whether this breach also involved a conflict of interest or duty. The court also needed to decide if the insurance policy's "claims made" requirement was met by McGrath, and whether the exclusion clauses related to personal profit or advantage and prior knowledge of circumstances leading to loss were applicable. Furthermore, the court had to consider the admissibility of previous representations made in affidavits as evidence, under the Evidence Act 1995 (Cth).

The court found that McGrath did breach his duties under section 180(1) by failing to disclose the building company's severe financial distress and inability to complete the project. However, the court held that the insurance policy did not respond to the loss claimed by Hakea because the first exclusion applied. The court concluded that Hakea's claim against Neon must be dismissed and directed the parties to confer and agree on the orders to be made, including the allocation of costs between Hakea and Neon. By 9 September 2022, the parties were required to bring in agreed draft orders or, if not agreed, competing draft orders, giving effect to these reasons.